Supply Chain Management

Schedules component items when they are
needed - neither earlier nor later

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Supply Chain Management

2

We’ll Discuss...
•

Dependent Inventory Model Requirements

•

Material Requirements Planning structure

•

Lot Sizing Techniques

•

Extensions of MRP

•

Distribution Resource Planning

•

Enterprise Resource Planning

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Supply Chain Management

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Dependent Demand
• The demand for one item is related to the
demand for another item
• Given a quantity for the end item, the demand
for all parts and components can be calculated
• In general, used whenever a schedule can be
established for an item
• MRP is the common technique
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Aggregate production plan sets the overall level of
output in broad terms

•

As the process moves from planning to execution,
each step must be tested for feasibility

•

MPS is the result of the production planning process

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Supply Chain Management

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Master Production Schedule (MPS)
•

MPS is established in terms of specific products

•

Schedule must be followed for a reasonable length of
time

•

The MPS is quite often fixed or frozen in the near
term part of the plan

•

The MPS is a rolling schedule

•

The MPS is a statement of what is to be produced, not
a forecast of demand
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Supply Chain Management

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MPS Examples
For Nancy’s Specialty Foods

Gross Requirements for Crabmeat Quiche
Day
Amount

6
50

7

8
100

9
47

10
60

11

12
110

13
75

14 and so on

Gross Requirements for Spinach Quiche
Day
Amount

7
8
9
100 200 150

10

11

12
60

13
75

14

15
100

16 and so on

Table 13
13..1

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Supply Chain Management

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The Planning Process
Master production
schedule
Change
requirements?

Change
master
production
schedule?

Material
requirements plan

Change capacity?
Capacity
requirements plan
No
Realistic?
Yes

Is capacity
plan being
met?

Is execution
meeting the
plan?

Execute capacity
plans
Execute
material plans

Figure 13.1
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Supply Chain Management

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The Planning Process
Production
Capacity
Inventory

Marketing
Customer
demand

Procurement
Supplier
performance

Management
Return on
investment
Capital

Finance
Cash flow

Human resources
Manpower
planning

Aggregate
production
plan

Master production
schedule

Engineering
Design
completion

Change
production
plan?

Figure 13
13..1
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Supply Chain Management

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Aggregate Production Plan
Months
Aggregate Production Plan
(shows the total
quantity of amplifiers)
Weeks

1

January

February

1,500

1,200

2

3

4

5

6

7

8

Master Production Schedule
(shows the specific type and
quantity of amplifier to be
produced
240 watt amplifier
150 watt amplifier
75 watt amplifier

100

100
500

100
500

300

100
450

450
100

Figure 13.2
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Supply Chain Management

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Expressing Master Production Schedule (MPS)
•

A customer order in a job shop (make(make-to
to--order)
company

•

Modules in a repetitive (assemble(assemble-to
to--stock)
company

•

An end item in a continuous (make(make-to
to--stock)
company

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Supply Chain Management

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Focus for Different Process Strategies
Make to Order
(Process Focus)

Assemble to Order or
Forecast
(Repetitive)

Number of
end items

Stock to Forecast
(Product Focus)
Schedule finished
product

Typical focus of the
master production
schedule

Schedule modules

Schedule orders

Number of
inputs
Examples:

Print shop
Machine shop
Fine-dining restaurant

Motorcycles
Autos, TVs
Fast-food restaurant

Steel, Beer, Bread
Lightbulbs
Paper

Figure 13
13..3
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Supply Chain Management

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Bills of Material
• List of components, ingredients, and materials
needed to make a product
• Provides product structure
• Items above given level are called parents
• Items below given level are called children

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Supply Chain Management

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BOM Example
Level
0

“Awesome”
(A)(2)(50) =
Part B:Product
2 xstructure
numberfor
of As
=

Part C:

A

3 x number of As =

B(2) Std. 12
12”” Speaker kit

1

Part D:

E(2)

2

3

D(2)

Part F:

(3)(50) =
C(3)

2 x number of Bs

+ 2 x number of Fs =
Part E:

+ 2 x number of Cs =

150
Std. 12
12”” Speaker kit w/
amp--booster
amp

(2)(100) + (2)(300) =
E(2)

2 x number of Bs

Packing box and installation
kit of wire, bolts, and screws

2 x number of Cs =

100

F ( 2)

800

Std. 12” Speaker
booster assembly

G(1)
(2)(100)
+ (2)(150)D=(2) 500

(2)(150) =

300

Amp--booster
Amp

Part
G:
1 x number of Fs =
12
12”” Speaker
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(1)(300) =

Supply Chain Management

12”300
Speaker

15

BOM Example
A
Ladder--back
Ladder
chair

Back slats
Back slats
B (1)
Ladder-back
subassembly

C (1)
Seat
subassembly

Seat cushion
Seat cushion
D (2)
Front
legs

LegLeg
supports
supports
F (2)
Back
legs

G (4)
Back
slats

Back
Front
Back
Front
legs
legs
legs
legs

H (1)
Seat
frame

I (1)
Seat
cushion

E (4)
Leg
supports

Seat-frame
Seat-frame
boards
boards

A
A
Ladder-back
Ladder-back
chair
chair

J (4)
Seat-frame
boards

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Supply Chain Management

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Product Structure of a Cellphone
Level

Product structure for a Cellphone
A

0
1

2

2/2/2016

Speaker

PCB

Camera

LCD

Battery

Fixer

Supply Chain Management

Body

Case

17

Bills of Material - Modular Bills
• Modules are not final products but
components that can be assembled into
multiple end items
• Can significantly simplify planning and
scheduling

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Supply Chain Management

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Bills of Material - Planning Bills

• Created to assign an artificial parent to the BOM
• Used to group subassemblies to reduce the
number of items planned and scheduled
• Used to create standard “kits” for production

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Supply Chain Management

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Bills of Material - Phantom Bills
• Describe subassemblies that exist only
temporarily
• Are part of another assembly and never go into
inventory

• BOMs are processed one level at a time
• Low
Low--Level Coding
• Item is coded at the lowest level at which it occurs
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Lead Times
• The time required to purchase, produce, or
assemble an item
• For purchased items – the time between the
recognition of a need and the availability of the
item for production
• For production – the sum of the order, wait, move,
setup, store, and run times
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Supply Chain Management

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Time-Phased Product Structure
Must have D and E
completed here so
production can begin on
B

Start production of D

1 week

D

2 weeks to
produce

B
2 weeks

E
A
2 weeks

1 week

E

2 weeks

1 week

G

C
3 weeks

F

1 week

D
|

|

|

1

2

3

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Figure 13.4
|

|

|

|

|

4
5
Time in weeks

6

7

8

Supply Chain Management

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MRP Structure
Data Files
BOM

Output Reports
Master
production schedule

MRP by period
report

MRP by date
report

Lead times
Planned order
report

(Item master file)

Inventory data

Purchasing data

Material
requirement
planning programs
(computer and
software)

Purchase advice

Exception reports
Order early or late or
not needed
Order quantity too
small or too large

Small Bucket Approach
• MRP “buckets” are reduced to daily or hourly
• The most common planning period (time bucket)
for MRP systems is weekly
• Planned receipts are used internally to sequence
production
• Inventory is moved through the plant on a JIT basis
• Completed products are moved to finished goods
inventory which reduces required quantities for
subsequent planned orders
• Back flushing based on the BOM is used to deduct
inventory that was used in production
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Supply Chain Management

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Balanced Flow
• Used in repetitive operations
• MRP plans are executed using JIT techniques
based on “pull” principles
• Flows are carefully balanced with small lot
sizes
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Supply Chain Management

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Lot-Sizing Techniques
• Lot
Lot--forfor-lot techniques order just what is
required for production based on net reqmts
• May not always be feasible
• If setup costs are high, costs may be high as well

• Economic order quantity (EOQ)
• EOQ expects a known constant demand and MRP
systems often deal with unknown and variable
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MRP in Services
• Some services or service items are directly
linked to demand for other services
• These can be treated as dependent demand
services or items
• Restaurants
• Hospitals
• Hotels
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